Metcalfe’s Law and the Speed of Networks
June 8, 2014
I believe that networking has become a bit of a dirty word. The concept of forced networking and networking events remove the serendipity and naturally evolving and occurring relationships people make in life and in business and turns relationships into something that are to be mined, somewhat artificially, for ones economic or social benefit.
In 1980, Robert Metcalfe first introduced the concept that became Metcalfe’s Law – that the value of a network is proportional to the square of the number of interconnected users (n^2.) The example most often used to explain Metcalfe’s Law was the value of networks of telephones and fax machines as users were added.
In the example below, we can clearly see how two member network is of little value, as you can only communicate with the other member of the network, while as users grow, the value and utility increases exponentially.
Social media has taken networking and the value of networks to a whole new level, as we can connect with people, interact with them effortlessly irrespective of distance, time zone or real world relationship. The value of networks was highlighted to me when I recently watched a Ted Talk with Dr. Luis von Ahn. The Ted Talk discussing Massive Scale Online Collaboration impacted me significantly for a number of reasons, many I’ve yet to fully appreciate. I shared it with our sales team, and have told all who are willing to listen about the content in the 16 minute lecture.
Among other things, the Ted Talk has inspired me (and a few other people I’ve told) to sign up for Duolingo and re-start Spanish language training. The Duolingo model is powerful, making language training free and accessible to everyone with an internet connection. The equation is also unique as users essentially pay for their language training with their time.
Other businesses have benefited from interconnectivity of users, and the power of the network. Barbara Gray, an equity analyst at Brady Capital Research discusses the concept of Social Capital – in a recent LinkedIn post, and outlines how AirBnB and Uber have benefited from being companies with a social mission, social marketplace, but also importantly from social sharing – leveraging and capturing the power of the network.
The internet and social sharing has increased the speed of adoption of new products and services. There are disruptive technologies coming in virtually every industry.
Duolingo is a great example in language learning, while Coursera.org has democratized access to higher education.
Odesk.com and Elance.com recently merged in the freelance/research/consulting space introducing those in need of services to freelancers willing to perform their tasks.
Task Rabbit and Gig Walk connect users with people willing to run errands for them.
Rocket Internet is considering going public, some of their businesses and internet properties are re-thinking fashion, furniture and general merchandise models in the developing world.
Disruptive technologies in education, hospitality, transport, staffing, consulting, dating and many areas are coming or are already here. The barriers to entry, costs are coming down and traditional businesses are going to face significant challenges.
With social media amplifying the speed of information, businesses need to be aware that their biggest competitor might not be an incumbent, but someone you just didn’t see coming.